HPR INC, 10-K, 1996-09-23

HPR INC
10-K, 1996-09-23
PREPACKAGED SOFTWARE

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

- -------------------

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]

For the fiscal year ended June 30, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]

For the transition period from _____________________ to________________________

Commission file number: 0-26348

HPR Inc.
(Exact name of registrant as specified in its charter)

Delaware 04-2985551
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)

245 First Street
Cambridge, MA 02142
(Address of principal executive offices)

(617) 679-8000
(Registrant's telephone number, including area code)

Securities registered pursuant to 12(b) of the Act:

Title of each class Name of each exchange on which registered
None _____________________________________

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01
(Title of class)
<PAGE>

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No ___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

The aggregate market value of the voting stock held by stockholders who are not
affiliates of the registrant was approximately $160 million based on the last
reported sale price of the registrant's Common Stock on the Nasdaq National
Market on September 6, 1996.

As of August 30, 1996, there were outstanding 15,112,047 shares of the
registrant's Common Stock, $0.01 par value per share.

DOCUMENTS INCORPORATED BY REFERENCE

Certain of the information called for by Parts I through IV of this report on
Form 10-K is incorporated by reference from certain portions of the Proxy
Statement of the registrant to be filed pursuant to Regulation 14A and to be
sent to stockholders in connection with the Annual Meeting of Stockholders to be
held on November 1, 1996. Such Proxy Statement, except for the parts therein
that have been specifically incorporated herein by reference, shall not be
deemed "filed" as part of this report on Form 10-K.

<PAGE>

PART I

Item 1. Business

The Company

The Company was incorporated on September 28, 1987 in Massachusetts under
the name HPR, Inc. The Company re-incorporated in Delaware on December 20, 1991,
under the name Health Payment Review, Inc. On July 24, 1995, the name of the
Company was changed to HPR Inc. Unless the context otherwise requires,
references herein to the "Company" and "HPR" refer to HPR Inc., a Delaware
corporation, its wholly owned subsidiaries and HPR, Inc., its Massachusetts
predecessor. On June 3, 1992, Concurrent Review Technology, Inc., a California
corporation, was merged into the Company's wholly owned subsidiary, Concurrent
Review Technology, Inc., a Delaware corporation. On August 16, 1995 the Company
established a wholly-owned subsidiary, HPR Securities Corp., a Massachusetts
corporation. On April 30, 1996, the Company acquired The Integrity Group, Inc.,
an Alabama corporation, which became a wholly owned subsidiary of HPR. The
Company's executive offices are located at 245 First Street, Cambridge,
Massachusetts 02142. Its telephone number is (617) 679-8000.

General

HPR develops and markets software and proprietary database products
incorporating clinical knowledge that enable payors and providers of healthcare
services to better manage the financial risk associated with the delivery of
healthcare and the quality of care. The Company's products are used to contain
the costs of healthcare by clinically evaluating providers' claims for payment;
measuring efficiency, quality and medical outcomes; determining appropriate
utilization of medical services; influencing physician referral patterns;
managing physician credentialing and recredentialing processes; and profiling
providers' practice patterns. The Company's products are developed and
maintained in consultation with over 200 board certified physicians serving on
Company-organized panels.

The Company's products are designed to meet the needs of parties assuming
financial risk for the delivery of healthcare. HPR believes that providing
clinical knowledge in usable form is essential to its customers. The Company
believes it can be distinguished from its competitors through the depth and
integrity of its "clinical knowledge-bases," as further described below. HPR is
currently marketing its CodeReview(trademark, R), Patterns Review(trademark, TM)
, Episode Profiler(trademark, TM), Quality Profiler(trademark, TM), Referral
Profiler(trademark, TM), and Credentialer(trademark, TM) products. HPR markets
its products through a combination of a national direct sales force and
third-party marketing agreements.

The Company was incorporated in 1987. In 1988, the Company introduced its
first product, CodeReview. In 1992, the Company acquired the clinical
knowledge-base for Patterns Review by means of a merger with Concurrent Review
Technology, Inc., and shortly thereafter released Patterns Review. In May 1995,
the Company released its third product, Episode Profiler and in October 1995
released its fourth product, Quality Profiler. With the acquisition of The
Integrity Group, Inc. in April 1996, the Company acquired and began marketing
its fifth product, Credentialer. The Company's sixth product, Referral Profiler,
was released in July 1996.

Industry Background

The United States healthcare industry is undergoing rapid change. In recent
years, healthcare expenditures have increased at approximately twice the rate of
inflation. In 1996, healthcare expenses are estimated to be approximately $1
trillion. The increase in healthcare expenditures has forced payors and
providers to change the way they operate. As pressure to manage healthcare costs
has increased, demand has intensified for healthcare information systems for use
by the parties assuming financial risk. These parties include payors, such as
employers; managed care organizations, including HMOs and preferred provider
organizations ("PPOs"); traditional indemnity insurers and third party
administrators ("TPAs"); and increasingly, providers, such as physicians,
hospitals and integrated healthcare delivery systems. This environment has
caused physicians to form groups or networks and to affiliate with hospitals,
and has provided an impetus for consolidation among hospitals and the emergence
of integrated healthcare delivery systems.

Under the traditional fee-for-service model of payment for medical services,
payors bore most of the financial risk for healthcare services. While payors
initially focused on reducing administrative costs, effective cost containment
also required them to address clinical issues, including overutilization,
underutilization, referral patterns and clinical practice guidelines. Payors are
responding to escalating costs by gradually shifting some portion of the
financial risk associated with the delivery of healthcare to providers,
generally under capitated payment arrangements. As a result, providers must
learn how to manage financial risk and enhance their understanding of treatment
costs, variability of costs and cost control measures, while continuing to
demonstrate quality in the services provided.

Historically, cost-containment efforts have been hampered by a lack of
integrated clinical and financial information. Payors continue to require
methods for cost control to review and correct healthcare claims. As managed
care techniques are becoming more sophisticated and responsibility for cost
containment is shared by payors and providers, however, these parties need to
manage risk by controlling costs, demonstrating quality, measuring outcomes and
performance and influencing utilization. Each of these goals requires the
collection, analysis and interpretation of clinical and financial information
related to the delivery of healthcare, intensifying the need for software and
proprietary databases incorporating clinical knowledge.

Strategy

HPR develops and markets software and proprietary database products
incorporating clinical knowledge that enable payors and providers to better
manage the financial risk in the delivery of healthcare. Key elements of the
Company's strategy are to:

- Maintain clinical focus. The Company has established its reputation by
focusing on the application of clinical knowledge. HPR plans to continue
to develop and expand its clinical knowledge-bases to deliver information
solutions to its customers. The Company believes that its ability to
incorporate clinical expertise into its products is a key strategic asset.

- Target parties assuming financial risk. Historically, the Company's
products have been used primarily by payors who traditionally have assumed
most of the financial risk associated with the delivery of healthcare. In
response to the shifting of risk from payors to providers, the Company has
developed products that specifically address the needs of providers as
well as payors.

- Expand product line. The Company plans to expand its product line through
research and development and the acquisitions of new products,
technologies and businesses. The Company is currently marketing
CodeReview, Patterns Review , Episode Profiler, Quality Profiler,
Credentialer, and Referral Profiler.

- Leverage existing customer base. Through the introduction of new products,
the Company can leverage its existing customer base by cross-selling. The
modular design of the Company's products is intended to accommodate new
products as they are introduced.

- Generate recurring revenue. The Company generates recurring revenues
through a combination of multi-year licenses and high renewal rates. The
Company seeks to maintain and increase recurring revenues through a
combination of regular product updates and comprehensive customer service.

Clinical Knowledge-Bases

HPR believes that providing clinical knowledge in usable form is essential
to meeting the needs of its customers. The Company believes it can be
distinguished from its competitors through the depth and integrity of its
"clinical knowledge-bases." Clinical knowledge-bases represent the codification
of specific medical treatments, protocols and "best treatment practices" from
within the medical community. These practices are represented as a series of
software algorithms or rules. The rules contained in the clinical
knowledge-bases form the foundation for the application software in the
Company's products. The clinical knowledge-bases are updated continually and
refined through the combined efforts of the Company's in-house clinical affairs
staff of ten physicians and nurses and of the board-certified physicians serving
on Company-organized panels, many of whom have been associated with the Company
since its inception.

The Company's application software and databases incorporate diagnoses and
clinical procedures represented by numeric codes selected from industry-standard
coding systems. These classification systems include the World Health
Organization's International Classification of Diseases, 9th Edition ("ICD-9")
(diagnostic codes); the American Medical Association's Current Procedural
Terminology, 4th Edition ("CPT-4") (medical procedure codes) and U.S. Healthcare
Financing Administration ("HCFA") Level I, II, and III HCFA Common Procedure
Coding System ("HCPCS") (codes for procedures or services which are not
incorporated into CPT-4). These coding systems are updated each year by the
World Health Organization, the American Medical Association and HCFA,
respectively.

The Company develops clinical knowledge-bases for new products and regularly
updates the clinical knowledge-bases for existing products. In addition to
annual updates that incorporate the annual revisions to ICD-9, HCPCS and CPT-4
codes, the Company reviews its clinical knowledge-bases approximately once every
two years to reflect changes in medical practice. Focusing on one medical
specialty at a time, the clinical staff revises the rules incorporated into the
clinical knowledge-bases on the basis of clinical experience, changes in medical
practice and reviews of current medical literature.

Revisions are subjected to multiple levels of review by the physicians
serving on Company-organized panels. Participation on these panels is based upon
experience with utilization review, geography, academic and practical
experience, and medical specialty. As a result of the level of physician
involvement in the development of its clinical knowledge-bases, HPR believes
that its products have credibility among physicians who are subject to
reimbursement and payment constraints imposed by cost containment efforts. This
"clinical credibility" allows customers using the Company's products to be
better able to influence physician practice patterns.

- Consensus Panels. The Company has organized sixteen "consensus panels" of
between eight and fifteen physicians. The consensus panels identify
changes in medical practice relevant to revising and enhancing the
Company's clinical knowledge-bases. Panelists are chosen for their
clinical knowledge and practical experience within a medical specialty.
There are over 200 board-certified physicians who are available to the
Company for service on a consensus panel. Panel membership is rotated
regularly to maintain balanced and diverse clinical perspectives. Each
panelist is financially compensated. Consensus panels convene
approximately eight to ten times per year.

- Senior Advisory Panel. The "senior advisory panel" is comprised of
approximately ten physicians who each have at least ten years of
experience in utilization management or managed care and have participated
in a consensus panel. The senior advisory panel reviews the work of
consensus panels and the clinical knowledge-base updates that reflect
annual revisions to diagnostic and procedural codes. Members of the senior
advisory panel are financially compensated. The senior advisory panel
meets once or twice per year.

- Specialty Consultants. Currently more than 30 physicians with clinical
expertise and utilization management experience serve as "specialty
consultants." The specialty consultants are retained by the Company for
advice on specific clinical issues on an as-needed basis.

Software Development

In addition to the clinical knowledge-bases which form the foundations for
its products, HPR has developed application software that enables customers to
access the clinical knowledge-bases. HPR's clinical and software development
staff collaborate to develop products designed to be responsive to customer
needs. In particular, the products generally are portable, scaleable and
customizable, and support an open architecture. The Company's software has been
developed using commercially available technology.

Products

HPR is currently marketing CodeReview(trademark, R), Patterns
Review(trademark, TM) , Episode Profiler(trademark, TM), Quality
Profiler(trademark, TM), Referral Profiler(trademark, TM), and
Credentialer(trademark, TM). Each of these products is designed to be used
individually or as part of an integrated system.
Current Products

Clinical Payment Management System ("CPMS", trademark, TM)

CPMS includes clinically sophisticated software products that can be
integrated into user's claims processing system to detect and correct
billing errors as well as identify potentially inappropriate or unnecessary
care before the customers pay for it. HPR's CPMS products are available on
many industry standard hardware and operating systems. The following
products make up the Clinical Payment Management System.

- CodeReview(trademark, R)

CodeReview reduces healthcare claims costs by detecting, correcting and
documenting improper or erroneous numerical coding of physician claims under
both the CPT-4 and HCPCS coding systems. CodeReview makes no judgment about
the necessity, clinical appropriateness or price of services rendered, but
instead reviews medical treatment and procedure codes submitted by
physicians for clinical inconsistencies and logical errors. CodeReview
allows payors to subject physician claims to a consistent and objective
claims review prior to making payment. CodeReview is also used by payors and
providers to standardize billing data to permit fair comparisons of practice
patterns.

Generally, physicians are paid by payors for healthcare services
performed according to a fee schedule associated with CPT-4 or HCPCS
treatment codes. The coding systems used by physicians may allow a medical
claim to be billed in various ways through the submission of different
combinations of treatment codes. This may result in significantly different
reimbursement for the claim. For example, the surgical removal of a gall
bladder typically involves a series of distinct procedures to prepare the
patient, remove the gall bladder, complete the surgery and monitor recovery.
The surgery may also include exploration of the abdomen and imaging
services. However, while exploration of the abdomen and the provision of
imaging services each has a unique treatment code, proper billing practice
requires coding the entire series as one procedure -- the removal of a gall
bladder -- which generally reduces the payment due for the procedure.

CodeReview screens each claim against its clinical knowledge-base, which
incorporates all of the approximately 7,500 CPT-4 and 2,800 HCPCS Level II
codes, and applies over 80,000 logical rules for detecting improper or
erroneous coding to the claims submitted by providers. If, for example, a
physicians files a claim with codes for both the removal of a gall bladder
and the exploration of the abdomen, CodeReview "re-bundles" the claim,
recoding it to include only removal of a gall bladder. CodeReview also
detects other coding errors, such as "upcoding," or billing for a more
extensive procedure than actually was performed.

CodeReview can be customized to include procedures for which selected
coverage policies may vary, or to account for regional variations in payment
practices. CodeReview was introduced in 1988 and developed pursuant to a
product development agreement with Caterpillar, Inc. There currently are
more than 195 licensees of CodeReview, each of which has entered into a
written noncancellable license agreement for a term of years with the
Company pursuant to which the licensee generally agrees to pay an annual
license fee for use of the product, maintain the product's confidentiality
and use the product only for certain purposes.

- Patterns Review(trademark, TM)

Patterns Review evaluates physician practice patterns for both inpatient
and outpatient services by comparing those patterns (determined on the basis
of codes filed by the physician) with accepted medical standards for
appropriateness, frequency and intensity. A "pattern" is a group of
diagnoses for which similar clinical management is appropriate. For example,
there are separate diagnostic codes for a wrist sprain and an ankle sprain,
but the appropriate course of treatment for each is similar, so both
diagnoses fall within the same pattern.

The clinical knowledge-base for Patterns Review assigns each of the
approximately 15,000 ICD-9 diagnostic codes to one of approximately 340
treatment patterns. The clinical knowledge-base for Patterns Review includes
guidelines for clinical appropriateness, frequency and intensity for each
pattern. Patterns Review matches the diagnostic code of a claim to the
appropriate treatment pattern and then compares the pattern to the actual
treatment rendered.

Patterns Review can be used by customers both as a tool for consistent
and objective claims review prior to making payment under a claim and as a
management tool for post-payment utilization analysis. When used prior to
making payment, Patterns Review provides the clinical rationale for reducing
payment. When used as a post-payment utilization management tool, Patterns
Review profiles physician practice patterns by comparing them to the
clinical guidelines incorporated in the clinical knowledge-base. This
enables customers to identify inefficient or inappropriate practice patterns
by specific provider.

There currently are more than 95 licensees of Patterns Review, each of
which has entered into a written noncancellable license agreement for a term
of years with the Company pursuant to which the licensee generally agrees to
pay an annual license fee for use of the product, maintain the product's
confidentiality and use the product only for certain purposes. In 1992, the
Company merged with Concurrent Review Technology, Inc. whose principal
product, Patterns of Treatment, was a collection of clinical protocols. HPR
incorporated those protocols into the application software and clinical
knowledge-base for Patterns Review.

CodeReview and Patterns Review are designed to function in conjunction
with a customer's claims processing system to evaluate claims each time a
claim is processed. The Company has developed interfaces that enable
CodeReview and Patterns Review to function with most commercially available
healthcare claims processing systems.

Clinical Resource Management System ("CRMS", trademarkTM)

CRMS includes a fully integrated product line of clinical analysis
products, each supported by a common data warehouse and a flexible
Windows-based analytic workstation. CRMS products enable users to assemble
information, access it quickly and easily, analyze it, and apply the results
to provide users with the clinical knowledge to manage cost, quality and
outcomes of patient care. Each CRMS product incorporates a common look and
feel, minimizing the user learning curve and making it easy to move from one
application to another. Information is presented in both a numeric and
graphic format for easy interpretation.

The following is a description of the products which make up the
Clinical Resource Management System.

- Episode Profiler(trademark, TM)

Episode Profiler provides comprehensive clinical and provider
profiling using "episode of care" analysis. An "episode" includes all
aspects of treatment, starting with an initial diagnosis and incorporates
inpatient, outpatient, hospital and physician services. The clinical
knowledge-base for Episode Profiler assigns each of the approximately 15,000
ICD-9 diagnostic codes to one of approximately 560 episode treatment groups
("ETGs"). Each ETG describes an appropriate episode of care for the natural
progression and treatment of a specific medical condition.

Episode Profiler can compare a provider's costs on a per episode basis
with those of a specified comparison group. Customers can use Episode
Profiler to create profiles for an entire health plan, a specific group of
providers or an individual provider, adjusting a provider's patient
population for illness severity and accounting for complications and other
medical conditions.

The Company introduced Episode Profiler in May 1995. There currently are
more than 35 licensees of Episode Profiler, each of which has entered into a
written noncancellable license agreement for a term of years with the
Company pursuant to which the licensee generally agrees to pay an annual
license fee for use of the product, maintain the product's confidentiality
and use the product only for certain purposes. The software for the ETGs is
licensed by the Company from Symmetry Health Data Systems, Inc.

- - Quality Profiler(trademark, TM)

Quality Profiler evaluates the quality of healthcare delivered and
identifies instances of healthcare providers delivering inadequate levels of
medical care. Quality Profiler is designed to screen for failure to provide
preventive-care services and minimum levels of care for specific acute and
chronic illnesses as well as to identify complications that may be
indicative of poor patient outcome.

In screening for failures to provide preventive-care services, the
clinical knowledge-base for Quality Profiler incorporates the clinical
components of the U.S. Preventive Task Force Guidelines and the Health
Employer Data Information Set ("HEDIS") guidelines established by the
National Committee for Quality Assurance. Quality Profiler is designed to
compare patient data (such as age and sex) to claims filed for the patient
over a specific period of time to look for the absence of appropriate codes
for preventive treatments that should have been performed under the
guidelines. For example, for a fifty-five year old woman, Quality Profiler
is designed to search over the prior twelve months for the CPT-4 code
indicating the performance of a mammogram.

Quality Profiler's clinical knowledge-base also incorporates protocols
for medical services associated with favorable outcomes for certain specific
acute and chronic illnesses as identified by members of the consensus and
senior advisory panels. Quality Profiler is designed to compare the claims
filed for a patient diagnosed with one of these illnesses to the protocols
developed by HPR's physician consulting network to identify instances of
underutilization. Quality Profiler tracks complications that indicate poor
outcomes for specified illnesses. Quality Profiler is designed to generate
both provider-specific and member-specific information.

The Company introduced Quality Profiler in October 1995 and there are
currently more than 15 licensees, each of which has entered into a written
noncancellable license agreement with the Company pursuant to which the
licensee generally agrees to pay an annual license fee for use of the
product, maintain the product's confidentiality and use the product only for
certain purposes. The product was developed with assistance from
Healthsource, Inc., which has received a license to use the product.

- - Referral Profiler(trademark, TM)

Referral Profiler is expert software designed to analyze primary care
work-ups and referral patterns to specialists in relation to clinical
guidelines. Referral Profiler enables users to manage medical care more
cost-effectively by identifying redundant testing and unnecessary or
inappropriate services associated with the referral management process.
Referral Profiler guidelines specify when certain tests and specialty
consultations are most effective in the diagnostic workup. Users can share
the diagnosis-specific guideline and cost information with providers as part
of ongoing educational or payment-related programs to improve performance,
or use the guidelines as a reference tool to provide information at the
point of care for improved medical management. With Referral Profiler, end
users generate clinically-detailed reports on the utilization of specialists
for use in network management, quality and outcomes management, utilization
control, and physician selection.

The product was developed with assistance from United Healthcare
Corporation, which has received a license to use the product. Referral
Profiler was released in July 1996 and currently has 5 licensees.

- - Credentialer(trademark, TM)

Credentialer is a comprehensive provider network management tool.
Providing automated workflow support to healthcare organizations,
Credentialer enables users to effectively manage credentialing and
recredentialing processes. With solutions for patient satifaction,
complaints and grievances, and office site review requirements, Credentialer
also serves as a valuable tool for organizations seeking NCQA accreditation.
Credentialer currently has 60 licensees.

CRMS Product Under Development

- - Patterns Profiler(TM)

Using clinical and financial results from Patterns Review, Patterns
Profiler is being designed to create summary and detailed reports for use in
network management and provider profiling. Patterns Profiler will provide
peer comparisons of provider performance by specialty, plan type, or
employer, helping users to quickly identify opportunities to reduce
inappropriate or unnecessary patient care.

Product and Customer Support

The Company's products are valuable to customers only if the clinical
knowledge-bases embodied therein are current and each customer can effectively
apply the clinical knowledge-bases to its own analytical requirements. In
addition to updates to incorporate annual revisions to ICD-9, HCPCS and CPT-4
codes, the Company updates its clinical knowledge-bases approximately once every
two years on the basis of clinical experience, changes in medical practice and
review of current medical literature.

The Company provides all its customers with toll free telephone hotline
support, available weekdays during business hours, to supply both clinical and
technical assistance. The Company also works with customers on a consulting
basis to facilitate product installation.

HPR invites client medical directors and users to participate in an annual
conference. The users' conference is a source of ideas and suggestions for
current and future products, as well as a forum on market and industry issues.
This conference lasts three to four days and up to 200 people participate in
sessions for operational, technical and clinical personnel. The users'
conference is a valuable resource for the Company as well as its customers,
providing feedback on products and marketing opportunities to provide training
and new product demonstrations.

In addition to the annual users' conference, for the past several years the
Company has convened a "medical directors' forum." This group includes the
medical directors from a number of HPR's clients, and provides valuable insight
for the Company into its customers' ongoing and future product needs, from which
the Company can make plans for enhancement of existing products and development
of new products.

Medical Advisory Board

The Company's Medical Advisory Board, chaired by Dr. Richard H. Egdahl, was
formally established in 1995 to serve as an important resource to HPR's
management. The Medical Advisory Board is composed of prominent physicians who
first met in December 1995. The Medical Advisory Board will meet approximately
twice annually and will otherwise be available to provide advice at the
Company's request on clinical issues and matters of overall policy and direction
of the Company. Members of the Medical Advisory Board receive an honorarium for
each meeting attended.

Customers

The Company has approximately 300 customers. Based upon discussions with its
customers, the Company believes that, in the aggregate, its customers cover
approximately 60 million lives. Approximately 55% are managed care organizations
such as HMOs and PPOs, 22% are indemnity plans, 10% are TPAs and employers, and
13% are providers.

The Company estimates based on industry data and surveys by industry
analysts that in the United States there are currently approximately 900 payors,
180 groups of greater than 50 physicians and 6,000 hospitals with greater than
50 beds, which are either customers or potential customers. The Company believes
these provider groups represent a relatively new and unpenetrated market for its
products. Additionally, the emergence of integrated healthcare delivery systems
may represent a significant potential market opportunity. The Company expects
the mix of its customers to shift toward providers who will assume more of the
financial risk in the delivery of healthcare.

Currently, 35% of the Company's customers use more than one of the Company's
products. The Company's customers include:

Managed Care Indemnity
Foundation Health Blue Cross/Blue Shield of Arkansas, Inc.
Corporation
Healthsource, Inc. Blue Cross/Blue Shield of New Jersey,Inc.
Kaiser
Oxford Health Plans, Inc. Blue Cross/Blue Shield of Tennessee,Inc.
Fortis Benefits Insurance
Company
United HealthCare Corporation

Providers TPAs/Employers
Monarch Health Systems ACMG, Inc.
First Health Services Corporation
Holy Cross Shared Services

Sales and Marketing

HPR markets its products through a combination of a national direct sales
force and third-party marketing agreements. Currently, the Company's sales force
consists of approximately 25 people, operating out of four sales offices.
Because the Company's products represent a large capital investment for its
customers, and due to the length of the sales cycle, senior management and
clinical support staff take an active role in marketing and sales activities.

Corporate marketing activities conducted by the Company's marketing staff
include press releases, customer testimonials, the development of corporate
product literature, presentations at industry events and trade shows and
advertising, as well as communications with targeted decision makers and
consultants in the healthcare community.

Research and Development

Nearly half of the Company's employees are involved with product
development. In addition, the Company's over 200 physician consultants,
organized into panels, contribute to product development.

The Company's research and development activities include new product
development, product updates and enhancement of existing products. Some of the
Company's product development has been accomplished with support from third
party users of the products, allowing the Company more efficiently to develop
products which are responsive to customer needs. A substantial majority of the
Company's research and development expenses are incurred in connection with new
product development.

The Company's research and development expenses for fiscal 1994, 1995 and
1996 were $1,499,000, $3,257,000, and $3,891,000 respectively.

Competition

The Company's potential competitors include healthcare information companies
and large data processing and information companies. Many of these competitors
have substantial installed customer bases in the healthcare industry and the
ability to fund significant product development and acquisition efforts. The
Company believes that the principal competitive factors in its market are
clinical credibility and integrity and product innovation. These factors address
both customer needs for cost containment tools and increasing industry concerns
about quality control. Other important competitive factors include product
reputation and reliability, system features, client service, price, and the
effectiveness of marketing and sales efforts. The Company believes it competes
favorably with respect to each of these factors.

Governmental Regulations and Healthcare Reform

The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation of
healthcare organizations. The Company's products are designed to function within
the structure of the healthcare financing and reimbursement system currently
being used in the United States. During the past several years, the healthcare
industry has been subject to an increase in governmental regulation of, among
other things, reimbursement rates. Certain proposals to reform the U.S.
healthcare system are currently under consideration by the Congress. These
programs may contain proposals to increase governmental involvement in
healthcare and otherwise change the operating environment for the Company's
customers. Healthcare organizations may react to these proposals and the
uncertainty surrounding such proposals by curtailing or deferring investments,
including those for the Company's products. On the other hand, changes in the
regulatory environment have increased and may continue to increase the needs of
healthcare organizations for cost-effective information management and thereby
enhance the marketability of the Company's products and services. The Company
cannot predict with any certainty what impact, if any, such proposals or
healthcare reforms might have on the Company's results of operations, financial
condition and business.

Intellectual Property

HPR considers its methodologies, computer software and knowledge-bases to be
proprietary. The Company seeks to protect its proprietary information through
nondisclosure agreements with its employees. The Company's policy is to have
employees enter into nondisclosure agreements containing provisions prohibiting
the disclosure of confidential information to anyone outside the Company,
requiring disclosure to the Company of any new ideas, developments, discoveries
or inventions conceived during employment, and requiring assignment to the
Company of proprietary rights to such matters that are related to the Company's
business.

The Company also relies on a combination of trade secrets, copyright and
trademark laws, contractual provisions and technical measures to protect its
rights in various methodologies, systems and products and knowledge-bases.
Except as described below, the Company has not filed any patent applications or
copyrights covering its software technology. Any infringement or
misappropriation of the Company's proprietary software and clinical
knowledge-bases would disadvantage the Company in its efforts to retain and
attract new customers in a highly competitive market and could cause the Company
to lose revenues or incur substantial litigation expense.

HPR was awarded a U.S. patent (No. 5,253,164) in October 1993 for the system
and methodology embodied in CodeReview(R). On January 23, 1995, the Company and
GMIS, Inc. ("GMIS") entered into an agreement settling certain litigation
initiated by GMIS to declare the Company's patent invalid and responded to by
the Company with a countersuit for patent infringement. Under the settlement
agreement, the Company granted GMIS a non-exclusive license under the patent,
and GMIS acknowledged the validity of the patent and made a one-time payment of
$7,200,000 to the Company.

Due to the nature of its application software, the Company believes that
patent, trade secret and copyright protection are less significant than the
Company's ability to further develop, enhance and modify its current products.

Although the Company believes that its products do not infringe on the
intellectual property rights of others, there can be no assurance that such a
claim will not be asserted against the Company in the future.

Employees

As of June 30, 1996, the Company employed 145 individuals. None of the
Company's employees are represented by a union or other collective bargaining
group. The Company believes its relationship with its employees to be
satisfactory.

Executive Officers of the Registrant

The executive officers of the Company, and their ages as of July 31, 1996,
are as follows:

Name Age Position
Marcia J. Radosevich, 43 Chairman of the Board, Chief Executive
Ph.D..................... Officer,
President
Brian D. Cahill.......... 38 Vice President Corporate Finance and
Planning, Chief Financial Officer,
Treasurer and Secretary
Thomas M. McNamara....... 41 Senior Vice President of Sales
Lawrence G. Miller, M.D.. 43 Vice President, Clinical Affairs (1)
Steven J. Rosenberg...... 40 Vice President, Software Development
and Services
James B. Stowe........... 46 Vice President, Marketing and Business
Development
- --------------------------------------------------------------------------------

(1) Dr. Miller resigned from his position effective August 1, 1996.

Dr. Radosevich has served as Chief Executive Officer and a director of the
Company since 1988 and was elected Chairman of the Board of Directors in June
1995. From 1988 until 1992, and since May 31, 1996 she also held the position of
President of the Company. She served as Vice Chairman of the Board from 1992 to
June 1995. Dr. Radosevich is a director of Oxford Health Plans, a health
maintenance organization.

Mr. Cahill joined the Company as Vice President, Finance, Chief Financial
Officer, Treasurer and Secretary in 1993 and has served as Vice President,
Corporate Finance and Planning since May 1996. From 1982 to 1992, Mr. Cahill
held various accounting and finance positions at Epsilon Data Management, Inc.,
a database marketing company which in 1990 became a subsidiary of American
Express Travel Related Services Company, Inc. He became Controller, Treasurer
and Secretary of Epsilon Data in 1987 and Vice President, Finance and Chief
Financial Officer in 1990.

Mr. McNamara served as Vice President, Sales of the Company since 1992 and
as Senior Vice President, Sales since May 1996. From 1991 until joining the
Company, he held the position of Vice President, Sales of Lawson Associates,
Inc., a software company. From 1986 until 1991, Mr. McNamara was a sales manager
for Pansophic Systems, Inc., a software company.

Mr. Rosenberg joined the Company as Vice President, Software Development and
Services in 1994. From 1992 to 1994, he served as Vice President of Sales
Technologies Inc., a sales force automation company, and from 1990 to 1992 was
Vice President of AICORP, Inc., a software company.

Mr. Stowe joined the Company as Vice President, Marketing and Business
Development in June 1995. From 1989 until joining the Company, he was a partner
and practice leader at Charles J. Singer & Co., a managed care research and
consulting firm.

Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any of the directors and executive officers of the
Company.

Item 2. Properties

The Company's executive and corporate offices are located in a 28,000 square
foot facility at 245 First Street, Cambridge, Massachusetts under a lease which
expires on August 31, 2003. The Company also maintains two sales offices in
Illinois and Nevada. The Company's wholly owned subsidiary, The Integrity Group,
Inc., maintains an operating facility in Birmingham, Alabama, under a lease
which expires on June 30, 1997. The Company believes that its facilities are
adequate for its current operations.

Item 3. Legal Proceedings

From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. As of the date
of this Annual Report on Form 10-K, the Company is not a party to any legal
proceedings which, if decided adversely to the Company, in management's opinion
would have a material adverse effect on the Company's results of operations or
financial position.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1996.

<PAGE>

Part II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Market for Common Stock

The Company effected its initial public offering to the public on August 10,
1995 at a price of $8.00 per share (adjusted to reflect the stock split
described below). Since that date the Company's Common Stock has traded on the
Nasdaq National Market under the symbol HPRI. The following table represents the
high and low sales prices for the Company's common stock for each quarter of
fiscal 1996, as reported by The Wall Street Journal. All stock prices have been
restated to reflect a 2 for 1 stock split to shareholders of record as of April
26, 1996 effected in the form of a stock dividend.

High Low
4th quarter ended June 30, 1996 $ 25.625 $ 18.25
3rd quarter ended March 31, 1996 $ 21.75 $ 15.50
2nd quarter ended December 31, 1995 $ 18.125 $ 11.25
1st quarter ended September 30, 1995 $ 13.25 $ 9.00

Holders of Record

As of September 6, 1996 there were 71 holders of record of the Company's
Common Stock.

Dividends

The Company has never declared or paid any cash dividends on the Common
Stock. The Company currently intends to retain future earnings, if any, to fund
the development and growth of its business and does not anticipate paying any
cash dividends on the Common Stock in the foreseeable future.

<PAGE>

Item 6. Selected Financial Data

The following table contains selected consolidated financial data of the
Company and is qualified by the more detailed Consolidated Financial Statements
and Notes thereto included in Item 8 hereof. The statement of operations data
for the fiscal years ended June 30, 1994, 1995 and 1996 and the balance sheet
data as of June 30, 1995 and 1996 have been derived from Consolidated Financial
Statements, which statements have been audited by Coopers & Lybrand L.L.P.,
independent accountants, and are included in Item 8 of this Form 10-K. The
statement of operations data for the fiscal years ended June 30, 1992 and 1993
and the balance sheet data as of June 30, 1992, 1993 and 1994 have been derived
from the Company's Consolidated Financial Statements, which statements have been
audited by Coopers & Lybrand L.L.P. and are not included in this Form 10-K. This
data should be read in conjunction with Consolidated Financial Statements and
Notes thereto and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."

<TABLE>

Fiscal Year Ended June 30,
<CAPTION>
1992 1993 1994 1995 1996(7)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues......................... $5,889 $10,770 $14,065 $18,264 $28,310
Expenses:
Cost of revenues............... 1,076 2,277 3,452 4,235 7,348
Marketing and sales............ 2,157 3,529 4,016 4,664 6,328
Research and development....... 499 598 1,499 3,257 3,892
General and administrative..... 1,222 1,701 2,324 2,037 3,594
Cost of acquisition (3) -- -- -- -- 336
Total expenses............... 4,954 8,105 11,291 14,193 21,498
Operating income................. 935 2,665 2,774 4,071 6,812
Interest income (expense), net... (63) (105) 17 302 877
(Loss) on early retirement of (309) -- -- -- --
debt(1)..........................
Gain on settlement of litigation(2) -- -- -- 5,800 --
Income before taxes.............. 563 2,560 2,791 10,173 7,689
Provision for income taxes....... 228 1,059 1,160 4,106 3,168
Net income(2).................... $335 $1,501 $1,631 $6,067 $4,521
Net income per share............. $0.03 $0.11 $0.12 $0.43 $0.29
1995 Pro forma net income(4)..... $2,608
1995 Pro forma net income per $0.18
share(4).........................
1996 Pro forma net income(5)..... $4,719
1996 Pro forma net income per $0.30
share(5).........................
Weighted average common shares and
equivalents (6)................ 10,434 13,522 13,966 14,175 15,840

<FN>

(1) During fiscal 1992, the Company made a lump sum prepayment under a loan
agreement with a related party resulting in a $309,000 loss on early
retirement.

(2) In January 1995, GMIS, Inc. made a one-time payment to the Company in
settlement of certain litigation, which payment was recorded as a gain, net
of certain legal and other costs.

(3) In April 1996, the Company incurred costs related to the acquisition of
The Integrity Group, Inc. which resulted in an expense
of $336,000.

(4) Reflects the fiscal 1995 net income on a pro forma basis by excluding the
gain on settlement of litigation and its related tax effect. Gain on
settlement of litigation, net of expenses, was $5,800,000, less an
effective tax rate of 40.4% ($2,341,000), which results in an after tax
gain of $3,459,000 on settlement of litigation. Accordingly, net income of
$6,067,000 less the $3,459,000 after tax gain results in pro forma net
income of $2,608,000.

(5) Reflects the fiscal 1996 net income on a pro forma basis by excluding the
costs related to the acquisition of The Integrity Group, Inc. and the
related tax effect. Costs of the acquisition were $336,000, less an
effective tax rate of 41.2% ($138,000), resulting in an after tax loss of
$198,000 due to acquisition costs. Accordingly, net income of $4,521,000
plus the $198,000 after tax expenditures results in pro forma net income of
$4,719,000.

(6) All share and earnings per share amounts have been restated to reflect the
impact of a stock split effected in the form of a 100% stock dividend
granted on May 6, 1996 to all shareholders of record on April 26, 1996.

(7) The acquisition of The Integrity Group was accounted for as a pooling of
interests, however, due to the relative immateriality of TIG's financial
position with respect to HPR as of the date of combination, the merger of
the equity interests was given retroactive effect to the beginning of
fiscal 1996. Accordingly, TIG's assets, liabilities, and shareholder's
equity were brought onto the Company's consolidated books as of the
beginning of the period as an adjustment to beginning equity.

</FN>
</TABLE>

<TABLE>

June 30,
----------------------------------------------------
<CAPTION>

1992 1993 1994 1995 1996(1)
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital............... $1,523 $2,192 $3,555 $11,130 $20,465
Total assets.................. 5,725 7,915 10,805 17,988 34,603
Long-term liabilities, net of
current
portion..................... 1,285 367 601 1,931 882
Stockholders' equity.......... 1,571 3,377 5,055 11,282 27,915
Dividends per share 0 0 0 0 0

<FN>

(1) The acquisition of The Integrity Group was accounted for as a pooling of
interests, however, due to the relative immateriality of TIG's financial
position with respect to HPR as of the date of combination, the merger of
the equity interests was given retroactive effect to the beginning of
fiscal 1996. Accordingly, TIG's assets, liabilities, and shareholder's
equity were brought onto the Company's consolidated books as of the
beginning of the period as an adjustment to beginning equity.

</FN>
</TABLE>

<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations

Overview

The Company licenses its products primarily pursuant to multi-year
non-cancellable agreements that, in general, provide for payment of equal annual
license fees over their terms. This type of arrangement provides the Company
with a significant recurring component to its revenues each year. Revenues from
software license agreements are recognized upon execution of a contract and
shipment of the software provided that no significant vendor obligations remain
outstanding and collection of the related receivable is deemed probable by
management. For annual recurring license fees, revenues are recognized on the
contract anniversary date. The Company accrues incidental support costs
associated with these licenses when revenues are recognized. Revenues from
services are recognized when the services are delivered. There can be no
assurance that the Company will be able to enter into new license agreements at
the current rate or to maintain the current pricing for its products.

Prior to fiscal 1993, the Company's revenues were derived from a single
product, CodeReview, and between July 1993 and May 1995 from two products,
CodeReview and Patterns Review . In May 1995, the Company introduced its third
product, Episode Profiler, and in October 1995 introduced its fourth product,
Quality Profiler. The acquisition of The Integrity Group, Inc. in April 1996
provided the Company with its fifth product, Credentialer. The Company released
its sixth product, Referral Profiler, in July 1996. The Company believes that as
the markets for CodeReview and Patterns Review mature, the continued growth of
the Company will require the successful introduction of new products and further
enhancements to its existing products.

The Company believes that continued investment in research and development
and expansion of its national direct sales force are critical to its success.
The Company believes that the aggregate amount of research and development
expense will continue to increase, if revenues increase as expected, while the
level of research and development expense as a percentage of revenues will
remain relatively constant.

The Company expanded its sales force during fiscal 1995 in anticipation of
the release of Episode Profiler and the introduction of Quality Profiler and
again in fiscal 1996 following the acquisition of The Integrity Group, Inc. and
the anticipated release of Referral Profiler. The Company believes that its
national sales force will be well positioned to address the shift of financial
risk associated with the delivery of healthcare from payors to providers and
consequently, will be prepared to sell into this new market for the Company.

The Company capitalizes software costs for internally developed software in
accordance with FASB 86, "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed." These costs relate primarily to the
development of new products and the extension of existing applications to new
markets or platforms using existing technologies and programming methods. The
capitalized costs are amortized on a straight-line basis over the estimated
useful life of the product (typically three years), commencing when each product
is available to the market.

To date, inflation has not had a material impact on the Company's financial
results. There can be no assurance, however, that inflation may not adversely
affect the Company's financial results in the future.

Results of Operations

The following table sets forth, for the fiscal periods indicated, certain
items from the statement of operations expressed as a percentage of revenues:

Fiscal Year Ended June 30,
1994 1995 1996
Revenues...................... 100 % 100 % 100%
Expenses:
Cost of revenues............ 24 23 26
Marketing and sales......... 29 26 22
Research and development.... 11 18 14
General and administrative.. 16 11 13
Cost of acquisition -- -- 1
Total expenses........... 80 78 76
Operating income.............. 20 22 24
Interest income (expense), net -- 2 3

Gain on settlement of litigation -- 32 --

Income before taxes........... 20 56 27
Provision for income taxes.... 8 23 11
Net income.................... 12 % 33 % 16 %

Fiscal Years Ended June 30, 1994, 1995 and 1996

Revenues. Revenues increased 30% from $14,065,000 in 1994 to $18,264,000 in
1995 and 55% to $28,310,000 in 1996. CodeReview has shown continued year over
year growth since its initial release in 1988 through new licenses and renewals
of existing licenses. Patterns Review is based on a product initially developed
by Concurrent Review Technology, Inc. ("CRT") which HPR acquired in June 1992.
Patterns Review has also shown growth through new licenses and renewals of
existing licenses.

Fiscal year 1996 revenues reflect revenues from the acquisition of The
Integrity Group, Inc. ("TIG") in April 1996, which was accounted for as a
pooling of interests incorporating TIG's results of operations for the entire
fiscal year. In addition, the fiscal 1996 results reflect a full year of
revenues related to the Company's Episode Profiler product, initially released
in the fourth quarter of fiscal 1995, as well as revenues from the release of
Quality Profiler in October 1995.

Cost of Revenues. Cost of revenues increased 23% from $3,452,000 in 1994 to
$4,234,000 in 1995 and 74% to $7,348,000 in 1996. As a percentage of revenues,
the cost of revenues decreased from 25% in 1994 to 23% in 1995 and increased to
26% in 1996. The increases were primarily due to certain royalty payments to
third parties for software licensed by the Company and incorporated into the
Company's products and by increased investment in the technical and clinical
customer support functions. The Company expects cost of revenues to remain
relatively constant as a percentage of revenues.

Marketing and Sales. Marketing and sales increased 16% from $4,016,000 in
1994 to $4,664,000 in 1995 and 36% to $6,328,000 in 1996. As a percentage of
revenues, marketing and sales decreased from 29% in 1994 to 26% in 1995 and 22%
in 1996. The Company invests in certain promotional activities each fiscal year
which include trade shows and seminars as well as the development of collateral
materials designed to increase awareness of the Company and its products. The
Company expanded its sales force during fiscal 1995 in anticipation of the
release of Episode Profiler and the future introduction of Quality Profiler, and
again in fiscal 1996 following the acquisition of The Integrity Group, Inc. and
the anticipated release of Referral Profiler. This investment in marketing and
sales contributed to higher revenues in fiscal 1995 and 1996 which has caused
sales and marketing expense to decrease as a percentage of revenues over that
same period. The Company expects sales and marketing to remain relatively
constant as a percentage of revenues.

Research and Development. Research and development efforts by the Company
are focused on developing new products and enhancing existing products. Research
and development increased 117% from $1,499,000 in 1994 to $3,257,000 in 1995
primarily as a result of the expenses associated with Episode Profiler, and to a
lesser extent, Referral Profiler and Quality Profiler. Research and development
increased 19% from $3,257,000 in 1995 to $3,892,000 in 1996 as a result of
continued research efforts on Quality Profiler and Referral Profiler and new
efforts focused on the Company's next product line currently under development.
As a percentage of revenues, research and development increased from 11% in 1994
to 18% in 1995 and decreased to 14% in 1996. The decrease in 1996 is a result of
two factors: the significant increase in revenue dollars in 1996 over 1995 and
the release of Episode Profiler in late 1995 and Quality Profiler in October
1996, both of which were in development during fiscal 1995. With the increase in
development activities on the Company's new product lines, management expects
that research and development expenditures will increase but remain
substantially the same as a percentage of revenue for the foreseeable future.

General and Administrative. General and administrative expenses decreased
12% from $2,323,000 in 1994 to $2,037,000 in 1995 and increased 76% to
$3,594,000 in 1996. As a percentage of revenues, general and administrative
expenses decreased from 16% in 1994 to 11% in 1995 and increased to 13% in 1996.
During 1994, certain severance costs were incurred that were not incurred in
1995 and are the primary reason for the decrease in expenditures from 1994 to
1995. The increased expenditures from 1995 to 1996 are due primarily to
increased expenses related to being a publicly-traded company, certain costs
incurred in moving the Company's headquarters in August 1995, and an increase in
the provision for bad debt expenses in proportion to the increase in revenues.
The Company believes that if revenues increase, general and administrative
expenses will decrease as a percentage of revenues in the future.

Costs of Acquisition. In April 1996, the Company acquired The Integrity
Group, Inc. ("TIG"), an Alabama corporation, in a transaction accounted for as a
pooling of interests. The Company incurred costs related to the acquisition of
$336,000 primarily related to legal, accounting, and finders fees.

Interest Income (Expense), Net. The Company realized interest income of
$17,000 in 1994, $302,000 in 1995, and $877,000 in 1996. Interest income
represents interest earned on the Company's excess cash balances, which are
generally placed in short term investments, money market funds and government
securities. The increase is due to the interest earned on cash balances of the
Company generated from operations and the proceeds from the Company's initial
public offering of its common stock completed in August 1995 and from the
follow-on offering completed in February 1996.

Gain on Settlement of Litigation. In January 1995, the Company settled all
of the outstanding claims between the Company and GMIS, Inc. related to the
Company's patent for CodeReview. Under the settlement agreement, the Company
granted GMIS a nonexclusive license under the patent, and GMIS acknowledged the
validity of the patent and made a one-time payment, net of legal and certain
other costs, of $5,800,000 to the Company.

Income Taxes. The Company's effective tax rate was 41.6% in 1994 compared
with 40.4% in 1995 and 41.2% in 1996. The Integrity Group, Inc. was a Subchapter
S Corporation until its acquisition on April 30, 1996. As a result, the partners
of TIG are responsible for all taxes on profits made through that date. The
Company has recorded taxes for the final two months of the fiscal year related
to TIG's activity. The Company has no federal income tax loss carry forwards.

Liquidity and Capital Resources

During the period from inception through June 30, 1996, the Company raised
approximately $15.5 million, net of expenses, through the issuance of equity
securities, of which amount approximately $7.2 million was raised in the first
quarter of fiscal 1996 in the Company's initial public offering and $4.2 million
was raised in the third quarter of fiscal 1996 in the Company's second public
offering. The Company generated cash of $3.4 million from operations in fiscal
1994, approximately $5.3 million in fiscal 1995 and approximately $4.5 million
during fiscal 1996. At June 30, 1996, the Company had cash and cash equivalents
of $8.5 million. The Company regularly invests excess funds in short-term money
market funds, government securities and commercial paper.

On January 18, 1996, the Company received an extension and modification of
its revolving bank credit facility from $2,000,000 to $5,000,000 with an
expiration date of December 31, 1996. No borrowings have been made to date under
the facility.

The Company believes that available funds and cash generated from operations
will be sufficient to meet the Company's operating requirements, assuming no
change in the operations of the Company's business, for the foreseeable future,
but at least for the next twelve months. While the Company continually evaluates
potential acquisitions, the Company has no present agreements or commitments
with respect to any acquisition, nor are negotiations regarding any acquisition
currently ongoing.

To date inflation has not had a material impact on the Company's financial
results. There can be no assurance, however, that inflation may not adversely
affect the Company's financial results in the future.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

Statements in this report concerning the future results of operations,
financial condition and business of the Company are "forward-looking" statements
as defined in the Securities Act of 1933 and the Securities Exchange Act of
1934. Investors are cautioned that information contained in these
forward-looking statements is inherently uncertain, and that actual performance
and results may differ materially due to numerous risk factors, including but
not limited to the following:

Seasonality and Variable Operating Results.

The Company has experienced a seasonal pattern in its operating results,
with the fourth and second fiscal quarters typically having the highest revenues
and net income and the first and third fiscal quarters typically having lower
revenues and net income. The timing of revenues is influenced by a number of
factors, including the timing of individual orders and shipments, seasonal
customer buying patterns and changes in product development and sales and
marketing expenditures. The Company believes the seasonality of its revenues and
net income for the fourth fiscal quarter can be attributed to due dates for
payment obligations under multi-year license agreements, renewals of existing
agreements and the Company's sales compensation program, which is based
significantly on fiscal year sales levels. The Company believes the seasonality
of its revenues and net income in the second fiscal quarter can be attributed to
the seasonal purchasing patterns of its customers. The Company reported a net
loss in the first and third quarters of fiscal 1994 and there can be no
assurance that the Company will be profitable during future quarters. In
addition, although the Company has no present agreements or commitments to enter
into any major contracts, the signing of a major contract could generate a large
increase in revenues and net income for any given quarter or fiscal year, which
increase may prove anomalous when compared to changes in revenues and net income
in other periods. Furthermore, the Company typically experiences long sales
cycles for new customers, which may extend over several quarters before a sale
is consummated. As a result, the Company believes that quarterly results of
operations will continue to be subject to significant fluctuations and that its
results of operations for any particular quarter or fiscal year may not be
indicative of results of operations for future periods.

Dependence Upon New Product Development, Acceptance and Enhancement.

The market for the Company's products is characterized by rapid
technological progress and changing customer needs. The Company believes that as
the markets for CodeReview and Pattern Review mature, the continued growth of
the Company will require the successful introduction of new products.
Accordingly, the Company's future success will depend on its ability to
successfully develop and introduce new products, including Referral Profiler,
and to enhance its existing products. There can be no assurance that the Company
will be successful in developing, introducing on a timely basis, and marketing
such products or enhancements or that they will be accepted by the market.
Research and development expenditures have equaled 11%, 18%, and 14% of the
Company's revenue for the fiscal years ended June 30, 1994, 1995, and 1996,
respectively. Significant research and development expenditures will be required
in the future. There can be no assurance that the Company's expected new product
releases and product enhancements will adequately address customer requirements
for performance and functionality or that its software will not contain "bugs"
that would delay product introduction or shipment.

Dependence on Third Party for Component of Episode Profiler.

A principal component of Episode Profiler, the "Episode Treatment Groups"
product, is licensed from a third-party vendor, Symmetry Health Data Systems,
Inc. ("Symmetry"), under the terms of a 63-month license which commenced
November 17, 1994 and has a 24-month renewal option which is contingent on the
Company meeting minimum royalty requirements. Symmetry has agreed, subject to
certain conditions, that it will not license Episode Treatment Groups to certain
other companies which might be considered competitors of the Company. While the
Company believes that the terms of such license are adequate to protect the
Company's investment in Episode Profiler, any factor adversely affecting the
Company's ability to retain the benefits of such license or to obtain the
updated Episode Treatment Groups would have a material adverse effect on the
Company's results of operations, financial condition and business.

Risk of Inability to Grow Through Acquisitions.

The Company has grown, and intends to continue to grow, in part through
acquisitions of products, technologies and businesses. The Company's ability to
expand successfully through acquisitions depends on many factors, including the
successful identification and acquisition of products, technologies and
businesses and management's ability to effectively integrate and operate the new
products, technologies or businesses. There is significant competition for
acquisition opportunities in the industry, which may intensify due to
consolidation in the industry, increasing the costs of capitalizing on such
opportunities. The Company competes for acquisition opportunities with other
companies that have significantly greater financial and management resources.

Management of Growth.

The Company is currently experiencing a period of rapid growth and expansion
which could place a significant strain on the Company's personnel and resources.
The Company's growth has resulted in an increase in the level of responsibility
for both existing and new management personnel. The Company has sought to manage
its current and anticipated growth through the recruitment of additional
management and technical personnel and the implementation of internal systems
and controls. However, the failure to manage growth effectively could adversely
affect the Company's results of operations, financial condition or business.

Inability to Retain or Attract Customers Due to Competition.

The market in which HPR's products are licensed is highly competitive. Most
of the Company's competitors have significantly greater financial, technical,
product development and marketing resources than the Company. The Company's
potential competitors for customers include healthcare information companies and
large data processing and information companies. Many of these competitors have
substantial installed customer bases in the healthcare industry and the ability
to fund significant product development and acquisition efforts. The Company
believes that the principal competitive factors in its market are clinical
credibility and integrity and product innovation. These factors address both
customer needs for cost containment tools and increasing industry concerns about
quality control. Other important competitive factors include product reputation
and reliability, system features, client service, price, and the effectiveness
of marketing and sales efforts. There can be no assurance that future
competition will not have a material adverse effect on the Company's results of
operations, financial condition or business.

Dependence on Proprietary Software and Clinical Knowledge-Bases.

The Company's success is dependent to a significant extent on its ability to
maintain the proprietary and confidential software and clinical knowledge-bases
incorporated in CodeReview, Patterns Review, Episode Profiler, Quality Profiler,
Referral Profiler and other products as they are released. The Company relies on
a combination of patent, trade secret, copyright and contractual protections to
establish and protect its proprietary rights. There can, however, be no
assurance that the legal protections and the precautions taken by the Company
will be adequate to prevent misappropriation of the Company's technology. Any
infringement or misappropriation of the Company's proprietary software and
clinical knowledge-bases would disadvantage the Company in its efforts to retain
and attract new customers in a highly competitive market, and could cause the
Company to lose revenues or incur substantial litigation expense. In addition,
these protections and precautions do not prevent independent third-party
development of competitive technology or products. Further, the Company depends
on third-party suppliers to license to HPR necessary technology that is
incorporated into certain of the Company's products, including Episode Profiler.
The inability of the Company for any reason to continue using or otherwise
acquire such technology could prevent distribution of such products, having a
material adverse effect on the Company's results of operations, financial
condition or business.

Dependence on Certain Key Personnel.

The Company depends to a significant extent on key management, technical and
marketing personnel. The Company's growth and future success will depend in
large part on its ability to attract, motivate and retain highly qualified
personnel. The Company does not have employment agreements with any of its
officers or key employees providing for their employment for any specific term.
The Company does not have "key man" life insurance on any of its personnel other
than Marcia J. Radosevich, the Company's Chairman of the Board, President and
Chief Executive Officer. The loss of key personnel, particularly the loss of
more than one member of the Company's executive management team, or the
inability to hire or retain qualified personnel could have a material adverse
effect on the Company's results of operations, financial condition or business.

Uncertainty in the Healthcare Industry.

The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation of
healthcare organizations. The Company's products are designed to function within
the structure of the current national healthcare financing and reimbursement
system currently being used in the United States. The Company believes that the
commercial value and appeal of its products may be adversely affected if that
system were to be materially changed. During the past several years, the United
States healthcare industry has been subject to an increase in governmental
regulation of, among other things, reimbursement rates. Certain proposals to
reform the United States healthcare system are currently under consideration by
Congress. These programs may contain proposals to increase government
involvement in healthcare and otherwise change the operating environment for the
Company's customers. Healthcare organizations may react to these proposals and
the uncertainty surrounding such proposals by curtailing or deferring
investments in cost containment tools and related technology such as the
Company's products. The Company cannot predict what impact, if any, such factors
might have on its results of operations, financial condition or business. In
addition, many healthcare providers are consolidating to create integrated
healthcare delivery systems with greater regional market power. As a result,
these emerging systems could have greater bargaining power, which may lead to
price erosion of the Company's products. The failure of the Company to maintain
adequate price levels would have a material adverse effect on the Company's
results of operations, financial condition or business. Other legislative or
market-driven reforms could have unpredictable effects on the Company's results
of operations, financial condition or business.

Risk of Product Liability Claims.

The Company's products provide information that relates to payment of
healthcare claims and to the appropriateness of medical treatment in particular
cases and in general. Any failure by the Company's products to process such
claims or to review such treatments accurately could result in claims against
the Company by its customers. Further, successful use of the Company's products
could influence the treatments rendered by providers and give rise to claims
against the Company by patients or providers. The Company maintains insurance to
protect against certain claims associated with the use of its products, but
there can be no assurance that its insurance coverage would adequately cover any
claim asserted against the Company. A successful claim brought against the
Company in excess of, or excluded from, its insurance coverage could have a
material adverse effect on the Company's results of operations, financial
condition or business. Even unsuccessful claims could result in the Company's
expenditure of funds in litigation and management time and resources. While to
date the Company has not experienced any product liability claims against it,
the Company is aware of claims made against payors by patients for coverage
decisions which adversely influenced medical treatment. There can be no
assurance that the Company will not be subject to product liability claims, that
such claims will not result in liability in excess of its insurance coverage,
that the Company's insurance will cover such claims or that appropriate
insurance will continue to be available to the Company in the future at
commercially reasonable rates. In addition, if liability of the Company were to
be established, substantial revisions to its product could be required that may
cause the Company to incur additional unanticipated research and development
expenses.

Possible Volatility of Stock Price.

Prior to August 10, 1995, there was no public market for the Common Stock,
and there can be no assurance that an active trading market will be sustained or
that the market price of the Common Stock will not decline below its current
price. The stock market historically has experienced volatility which has
affected the market price of securities of many companies and which has
sometimes been unrelated to the operating performance of such companies. The
trading price of the Common Stock could also be subject to significant
fluctuations in response to variations in quarterly results of operations,
announcements of new products or acquisitions by the Company or its competitors,
governmental regulatory action, other developments or disputes with respect to
proprietary rights, general trends in the industry and overall market
conditions, and other factors. The market price of the Common Stock may be
significantly affected by factors such as announcements of new products by the
Company's competitors, as well as variations in the market conditions in the
medical cost containment or software industries in general. The market price may
also be affected by movements in prices of equity securities in general.

<PAGE>

Item 8. Financial Statements and Supplementary Data

HPR Inc.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
Report of Independent Accountants............................................ 26
Consolidated Balance Sheets as of June 30, 1995 and 1996..................... 27
Consolidated Statements of Operations for the years ended June 30, 1994,
1995 and 1996............................................................... 28
Consolidated Statements of Stockholders' Equity for the years ended June 30,
1994, 1995 and 1996......................................................... 29
Consolidated Statements of Cash Flows for the years ended June 30, 1994,
1995 and 1996............................................................... 30
Notes to Consolidated Financial Statements................................... 31

25
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of HPR Inc.

We have audited the accompanying consolidated balance sheets of HPR Inc. as
of June 30, 1995 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of HPR Inc. as of
June 30, 1995 and 1996 and the consolidated results of its operations and its
cash flows for each of the three years in the period ended June 30, 1996, in
conformity with generally accepted accounting principles.

As discussed in Note 2 to the Consolidated Financial Statements, in fiscal
1995 the Company retroactively changed its method of accounting for certain
revenues.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
August 1, 1996

26
<PAGE>

<TABLE>

HPR Inc.

CONSOLIDATED BALANCE SHEETS

June 30,
---------------------------
<CAPTION>
1995 1996

<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents (Note 2)................. $ 8,486,062 $ 8,479,122
Investments in marketable securities (Note 4)...... -- 9,016,146
Accounts receivable, net of allowances for doubtful
accounts of $419,800, and $603,000 for 1995 and
1996 3,078,643 4,491,065
Contract receivables............................... 2,784,936 3,142,680
Deferred income taxes (Note 8)..................... 436,924 415,149
Prepaid expenses and other current assets.......... 1,119,310 727,044
Total current assets........................ 15,905,875 26,271,206
Investments in marketable securities (Note 4) -- 5,394,340
Property and equipment, net (Note 5)................. 896,942 1,964,164
Software development costs, net (Note 2)............. 1,085,219 873,427
Other assets......................................... 100,332 100,332
Total assets................................ $17,988,368 $34,603,469
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable................................... $ 704,527 $ 607,259
Accrued expenses................................... 1,031,374 1,038,045
Accrued support costs.............................. 966,566 1,425,191
Accrued employee compensation and benefits......... 1,138,088 1,323,973
Deferred revenue................................... 788,924 698,029
Income taxes payable............................... -- 438,758
Sales taxes payable................................ 146,619 275,022
Total current liabilities................... 4,776,098 5,806,277
Deferred income taxes (Note 8)....................... 1,930,518 882,173
Total liabilities........................... 6,706,616 6,688,450
Commitments and contingencies (Note 6)
Stockholders' Equity:
Convertible preferred stock, par value $0.10,
3,000,000 shares authorized; 2,762,500 shares
outstanding at June 30, 1995 and
zero at June 30, 1996 276,250 --
Common stock, par value $0.01, 35,000,000 shares
authorized; 10,325,900 and 17,918,625 shares
issued and 7,419,650 and 15,012,375 shares
outstanding at June 30, 1995 and 1996,respectively 103,259 179,185
Additional paid-in capital......................... 3,750,456 15,972,680
Less treasury stock, at cost: 2,906,250 shares at
June 30, 1995 and 1996, respectively.............. (2,843,900) (2,843,900)
Retained earnings.................................. 9,995,687 14,607,054
Total stockholders' equity.................. 11,281,752 27,915,019
Total liabilities and stockholders' equity.. $17,988,368 $34,603,469
</TABLE>

The accompanying notes are an integral part of the
consolidated financial statements.

27
<PAGE>

HPR Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

Fiscal Year Ended June 30,
1994 1995 1996

Revenues......................... $14,064,730 $18,263,831 $28,310,272
Expenses:
Cost of revenues............... 3,451,748 4,234,427 7,348,354
Marketing and sales............ 4,016,149 4,664,362 6,328,282
Research and development....... 1,499,193 3,257,268 3,891,381
General and administrative..... 2,323,364 2,036,644 3,594,331
Cost of Acquisition (Note 12) -- -- 335,544
Total expenses................... 11,290,454 14,192,701 21,497,892
Operating income................. 2,774,276 4,071,130 6,812,380
Interest income (expense), net... 17,122 301,412 877,377
Gain on settlement of litigation
(Note 11)...................... -- 5,800,223 --
Income before provision for income
taxes.......................... 2,791,398 10,172,765 7,689,757
Provision for income taxes....... 1,160,068 4,105,277 3,167,894
Net income....................... $1,631,330 $6,067,488 $4,521,863
Net income per share............. $0.12 $0.43 $0.29
Weighted average common shares and
equivalents (1)................ 13,966,000 14,175,000 15,840,000

(1) All share and earnings per share amounts have been restated to reflect
the stock split effected in the form of a 100% stock
dividend granted on May 6, 1996 to all shareholders
of record on April 26, 1996.

The accompanying notes are an integral part of the
consolidated financial statements.

28
<PAGE>

<TABLE>

HPR Inc.

CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY For the Fiscal
Years Ended June 30 1994, 1995 and
1996

Preferred Common
Stock Stock Additional Treasury Total
Shares Shares Paid in Retained Stock Stockholders'
Issued Amount Issued Amount Capital Earnings Shares Amount Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 2,762,500 $276,250 8,673,400 $86,734 $3,555,776 $2,296,869 (2,862,500) ($2,839,000) $3,376,629
Issuance of common
stock 75,000 750 48,000 48,750
Treasury stock purchased (1,225) (43,750) (4,900) (6,125)
Options exercised 87,500 875 4,025 4,900
Net income 1,631,330 1,631,330
--------- ---------- ---------- --------- ---------- ---------- ---------- ---------- ----------

Balance at June 30, 1994 2,762,500 276,250 8,835,900 88,359 3,606,576 3,928,199 (2,906,250) (2,843,900) 5,055,484
Issuance of common stock 25,000 250 16,000 16,250
Options exercised 1,465,000 14,650 127,880 142,530
Net Income 6,067,488 6,067,488
--------- ---------- ---------- --------- ---------- ---------- ---------- ---------- ----------

Balance at June 30, 1995 2,762,500 276,250 10,325,900 103,259 3,750,456 9,995,687 (2,906,250) (2,843,900) 11,281,752
Pooling of interests with
The Integrity Group,Inc. 260,001 2,600 119,900 89,504 212,004

Balance as restated 2,762,500 276,250 10,585,901 105,859 3,870,356 10,085,191 (2,906,250) (2,843,900) 11,493,756

Conversion of preferred (2,762,500)(276,250) 5,525,000 55,250 221,000
stock
Issuance of common stock
in initial public 1,077,052 10,770 8,002,578 8,013,348
offering

Expenses related to
initial public offering (858,896) (858,896)

Issuance of common stock
in second public 288,596 2,886 4,645,545 4,648,431
offering
Expenses related to
second public offering (424,420) (424,420)

Options exercised 442,076 4,420 164,632 169,052
Tax benefits on stock
options exercised 351,885 351,885
Net income 4,521,863 4,521,863
--------- --------- ---------- -------- ---------- ---------- ---------- ---------- ----------

Balance at June 30, 1996 - - 17,918,625 $179,185 $15,972,680 $14,607,054 (2,906,250) ($2,843,900) $27,915,019

<FN>

The accompanying notes are an integral part of the
consolidated financial statements.
</FN>
</TABLE>

29
<PAGE>

- -------------------------------------------------------------------------------
HPR Inc.
- -------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended June 30,
1994 1995 1996

Cash flows from operating activities:
Net income........................ $1,631,330 $6,067,488 $4,521,863
Adjustments to reconcile net
income to
cash provided by operating
activities:
Depreciation and amortization.. 731,048 1,074,491 1,254,119
Provision for doubtful accounts 296,000 210,000 321,302
Loss on disposal of equipment.. 6,290 124,488 --
Amortization of discount on
investments.................. -- -- (114,242)
Change in operating assets and
liabilities:
Accounts receivable............ (1,253,447) (1,867,568) (1,785,004)
Prepaid expenses............... (117,342) (970,859) 490,502
Other assets................... (66,345) 76,191 --
Accounts payable and other
accrued
liabilities.................. 758,072 1,130,196 322,411
Sales taxes payable............ (87,582) (123,944) 128,403
Deferred revenue............... 851,182 (62,258) (90,895)
Income taxes payable........... 457,028 (705,401) 438,758
Deferred income taxes.......... 217,320 373,364 (1,026,570)
Net cash provided by operating
activities................ 3,423,554 5,326,188 4,460,647
Cash flows for investing activities:
Capitalized software development
costs.......................... (774,406) (591,261) (366,332)
Capital expenditures.............. (447,222) (664,330) (1,732,624)
Sale of marketable securities -- -- 15,276,906
Purchase of marketable securities. -- -- (29,573,130)
Net cash used in investing
activities................ (1,221,628) (1,255,591) (16,395,180)
Cash flows from (for) financing
activities:
Proceeds from initial public
offering....................... -- -- 8,013,348
Expenses related to initial public
offering....................... -- -- (858,896)
Proceeds from second public
offering....................... -- -- 4,648,431
Expenses related to second public
offering....................... -- -- (424,420)
Proceeds from sale of common stock 48,750 16,250 --
Proceeds from exercise of stock
options........................ 4,900 142,530 169,052
Payments to acquire treasury stock (6,125) -- --
Payments on long-term debt........ (984,573) (91,860) --
Tax benefits from exercise of stock
options...................... -- -- 351,885
Net cash provided by (used in)
financing activities...... (937,048) 66,920 11,899,400
Net increase (decrease) in cash and
cash
equivalents....................... 1,264,878 4,137,517 (35,133)
Cash and cash equivalents, beginning
of
period............................ 3,083,667 4,348,545 8,486,062
Cash and cash equivalents provided
by the
acquisition of The Integrity -- -- 28,193
Group, Inc. ........................
Adjusted cash and cash equivalents,
beginning of period............... 3,083,667 4,348,545 8,514,255
Cash and cash equivalents, end of
period............................ $4,348,545 $8,486,062 $8,479,122

The accompanying notes are an integral part of the consolidated financial
statements

30
<PAGE>

HPR Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Description of Business

HPR Inc. (the "Company") was formed in 1987. The Company develops and
markets software and proprietary database products incorporating clinical
knowledge that enable payors and providers to better manage the financial risk
associated with the delivery of healthcare and the quality of care. The
Company's products are used to contain the costs of healthcare by clinically
evaluating claims for payment; measuring efficiency, quality and outcomes;
determining appropriate utilization; influencing physician referral patterns and
profiling providers. The Company's products are developed and maintained in
consultation with board certified physicians serving on Company-organized
panels.

(2) Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Concurrent Review Technology, Inc., HPR
Securities Corp., established in August 1995, and The Integrity Group, Inc.,
acquired in April 1996 in a transaction accounted for as a pooling of interests.
All significant intercompany accounts and transactions have been eliminated in
consolidation.

Financial Statement Presentation

On July 20, 1995, the stockholders of the Company approved a 2.5-for-1 stock
split of the Company's common stock and preferred stock and approved an increase
of the authorized number of common shares to 35,000,000 and of preferred shares
to 3,000,000. On April 16, 1996, the Company announced a stock split effected in
the form of a 100% stock dividend to all shareholders of record on April 26,
1996. The stock dividend was granted on May 6, 1996. Accordingly, all share and
per share amounts have been adjusted to reflect the stock splits as though they
had occurred at the beginning of the initial period presented.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with original
maturities of three months or less at the time of acquisition to be cash
equivalents. Cash and cash equivalents include U.S. government obligations and
U.S. government money market mutual funds used for temporary cash management
purposes.

Investments in Marketable Securities

In accordance with FAS 115, management determines the appropriate
classification of its investments in debt and equity securities at the time of
purchase and reevaluates such determination at each balance sheet date. Debt
securities for which the Company has the intent or ability to hold to maturity
are classified as held to maturity. The Company holds no investments in equity
securities at June 30, 1995 and 1996. Securities held to maturity are carried at
amortized cost which approximates fair market value. The Company classifies
investments that mature greater than 12 months from the balance sheet date as
long term investments.

31
<PAGE>

Concentration of Credit Risk

Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of cash and trade accounts receivable. The
Company places its temporary cash investments in two financial institutions. The
Company has not experienced any losses on these investments to date. The Company
has not experienced significant losses related to receivables from individual
customers or groups of customers in the healthcare industry or by geographic
area. Due to these factors, no additional credit risk beyond amounts provided
for collection losses is believed by management to be inherent in the Company's
accounts receivable.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed on a
straight-line basis over a two-to eight-year estimated useful life. Repairs and
maintenance costs are charged to expense as incurred. Upon retirement or sale,
the cost of the assets disposed of and the related accumulated depreciation are
removed from the accounts and any resulting gain or loss is included in the
determination of net income.

Software Development Costs

The Company capitalizes software costs for internally developed software in
accordance with Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed."
These costs relate primarily to the development of new products and extending
existing applications to new markets or platforms using existing technologies
and programming methods. All costs incurred to establish technological
feasibility are charged to expenses as incurred. Internally developed software
costs capitalized were $828,407, $591,261, and $366,332 for fiscal years 1994,
1995, and 1996, respectively. The capitalized costs are amortized on a
straight-line basis over their estimated useful lives (typically three years),
commencing when each product is available to the market. Amortization of these
software development costs is included in costs of revenues. Amortization
expense for computer software was $334,573, $608,285, and $578,152 during 1994,
1995, and 1996, respectively. Accumulated amortization of software development
costs was $829,969, $1,438,254, and $2,016,379 at June 30, 1994, 1995, and 1996,
respectively.

The Company evaluates, on a quarterly basis, the recoverability of
capitalized software costs on the basis of whether such costs are fully
recoverable from projected undiscounted cash flows of individual products. In
performing its evaluation, the Company must make estimates of anticipated future
gross revenues as well as the remaining economic life of the product. It is
reasonably possible that those estimates could be reduced in the near term as a
result of items such as competitive pressures. As a result, the carrying amount
of the capitalized software costs for a particular product line may be reduced
materially in the near term.

Revenue Recognition

The Company licenses its products primarily pursuant to multi-year
non-cancellable agreements that provide for payment of equal annual license fees
over their terms. The Company recognizes revenue in accordance with Statement of
Position No. 91-1, "Software Revenue Recognition," issued by the American
Institute of Certified Public Accountants. Revenue from software license
agreements is recognized upon execution of a contract and shipment of the
software provided that no significant vendor obligations remain outstanding and
the related receivable is due within one year of the contract date and
collection is deemed probable by management. For recurring license fees,
revenues are recognized on the contract anniversary date. The Company also
accrues incidental support costs associated with these licenses when revenues
are recognized. Revenues from services are recognized when the services are
delivered.

In fiscal 1995, the Company retroactively changed its method of recognizing
renewal or recurring revenue from the recognition of the annual contract amount
ratably over the renewal period to the recognition of the entire recurring
amount on the contract anniversary date. The change was made in accordance with
the Accounting Principles Board Opinion No. 20 in contemplation of an initial
public distribution of the financial statements. The financial statements for
all periods presented have been restated to reflect the change in accounting.
The effect of the restatement was an increase to revenue of $781,000 and
$1,703,000 for the years ended June 30, 1994 and 1995, respectively. The effect
of the restatement was an increase to net income and net income per share of
$333,400 or $0.02 for the year ended June 30, 1994 and $987,000 or $0.07 for the
year ended June 30, 1995.

32
<PAGE>

Customer payment terms vary. Amounts billed in advance of satisfying revenue
recognition criteria are classified in current and long term liabilities as
deferred revenue in the accompanying balance sheets. Costs and earnings
recognized in advance of billing are classified in current assets as contract
receivables.

Research and Development

Research and development costs are charged to expense as incurred.

Income Taxes

Under the liability method specified by SFAS No. 109, a deferred tax asset
or liability is determined based on the difference between the financial
statement and tax basis of assets and liabilities, as measured by the enacted
tax rates expected to apply when these differences reverse. SFAS No. 109 also
requires a valuation allowance against net deferred tax assets if, based upon
the available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.

Net Income Per Share

Net income per share of common stock is computed for each year based upon
the weighted average number of common shares outstanding and dilutive common
stock equivalents. For purposes of this calculation, outstanding options are
considered common stock equivalents (using the treasury stock method). Pursuant
to Securities and Exchange Commission Staff Accounting Bulletin No. 83, common
and common equivalent shares issued during the 12 month period prior to the date
of the initial filing of the Company's Registration Statement have been included
in the calculation, using the treasury stock method, as if they were outstanding
for all periods presented. Fair market value for the purpose of this calculation
was assumed to be $6.75, which is the midpoint of the initial public offering
price range. The number of shares used in this calculation has been adjusted to
reflect a 2.5-for-1 stock split in July 1995 and a 2 for 1 stock split effected
in the form of a 100% stock dividend in May 1996.

Use of Estimates in the Preparation of the Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

(3) Line of Credit

During 1994, the Company entered into a $2,000,000 bank line of credit which
expired December 31, 1995. On January 18, 1996, the Company received an
extension and modification of its revolving bank credit facility from $2,000,000
to $5,000,000 with an expiration date of December 31, 1996. The $5,000,000 bank
line is an uncollateralized borrowing line. The current and prior agreements
require the Company to achieve certain levels of tangible net worth and to
maintain certain financial ratios. Borrowings under the agreement bear interest
at the bank's commercial rate plus one-half of one percent, which was 8.75% at
June 30, 1996. During 1994, 1995, and 1996 the line of credit was unused;
therefore, no interest was paid.

33
<PAGE>

(4) Investment in Marketable Securities

In accordance with FAS 115, management determines the appropriate
classification of its investments in debt and equity securities at the time of
purchase and reevaluates such determination at each balance sheet date. Debt
securities for which the Company has the intent or ability to hold to maturity
are classified as held to maturity. The Company holds no investments in equity
securities at June 30, 1995 and 1996. Securities held to maturity are carried at
amortized cost which approximates fair market value. At June 30, 1996 the
Company had no investments that qualified as trading or available for sale. At
June 30, 1995, the Company's investments in debt securities were classified as
cash and cash equivalents.

In fiscal 1996 transactions in marketable securities decreased cash by
$14,410,486. Investments in held-to-maturity securities totaled $29,687,372.
Proceeds from the disposition of held to maturity securities amounted to
$15,276,906. During fiscal 1996 the Company disposed of $7,167,900 in
investments classified as held to maturity prior to their maturity date. The
sales resulted in realized gains of $357 in the 1996 statement of operations.
The sale of the securities prior to maturity was an isolated event due to the
need to comply with legal restrictions to maintain the favorable tax status of
HPR Securities Corp. a Massachusetts securities corporation.

Marketable securities, classified as current securities, as of June 30,
1996, include the following:

Amortized Fair
Cost Value
U.S. Government
Securities............... $9,016,146 $9,018,408

Marketable securities, classified as long term securities, as of June 30,
1996, are all due within three years and include the following:

Amortized Fair
Cost Value
U.S. Government
Securities............... $5,394,340 $5,393,751

(5) Property and Equipment

Property and equipment, at cost, consist of the following:

June 30,
-------------------------
1995 1996
Computer equipment......... $810,913 $1,272,852
Computer software.......... 172,574 367,643
Furniture and fixtures..... 144,775 612,366
Office equipment........... 200,894 323,081
Leasehold improvements..... -- 433,576
1,329,156 3,009,518
Less accumulated (432,214) (1,045,354)
depreciation...............
$896,942 $1,964,164

Depreciation expense was $179,322, $332,624, and $675,967 in 1994, 1995, and
1996 respectively.

34
<PAGE>

(6) Commitments and Contingencies

The Company has entered into operating leases of office facilities, which
expire at various dates through 2003. Certain leases include renewal options and
escalation clauses for increases in real estate taxes and operating expenses.
Future minimum rental payments under the operating leases as of June 30, 1996
are as follows:
Minimum Lease
Payments Due
Year
1997 $661,729
1998 685,897
1999 696,731
2000 654,708
2001 624,691
2002 and thereafter 1,465,493
Total rent expense under noncancelable operating leases was
approximately $375,000, $437,000, and $667,000 during 1994, 1995, and 1996,
respectively.

The Company has severance payment agreements with certain members of its
senior management which provide for payments of up to 12 months of annual base
salary upon termination by the Company for reasons other than death, disability
or "for cause" as defined therein. The Company has also entered into
non-competition agreements with each of its executive officers. These agreements
provide that upon termination of such officer's employment by the Company, he or
she will refrain for a period of up to 24 months, to be determined by the
Company, from certain competitive activities with respect to the Company. If the
Company exercises its option to restrain any such officer from competitive
activity, it will pay such officer 33% of his or her monthly salary as of
termination for each month for which the executive officer agrees to refrain
from competing with the Company.

(7) Notes Payable

The Company's subsidiary issued notes to the selling stockholders of CRT
prior to its acquisition by the Company for past services provided in the
aggregate amount of $285,000. The notes were paid in full as of May 1995.

Total interest payments of $42,000, $14,000, and $0 were made on the notes
in 1994, 1995 and 1996, respectively.

(8) Income Taxes

The Company follows SFAS No. 109, "Accounting for Income Taxes".
Under SFAS 109, deferred tax assets and deferred tax liabilities are
recognized based on temporary differences between the basis of assets
and liabilities using statutory rates.

June 30, June 30,
1995 1996
Gross deferred tax assets:
Reserves and certain accrued $747,962 $995,566
expenses...........................
Subtotal................. 747,962 995,566
Gross deferred tax liabilities:
Property and equipment (41,166) (13,762)
depreciation.......................
Deferred revenue................. (1,742,801) (1,086,813)
Capitalized software amortization (437,018) (351,729)
Other............................ (20,571) (10,286)
Subtotal................. (2,241,556) (1,462,590)
Net deferred tax liability........ $(1,493,594) $(467,024)

35
<PAGE>

The provision for income taxes consists of the following:

Fiscal Years Ended June 30,
1994 1995 1996
Current:
Federal............... $773,541 $2,845,133 $3,276,743
State................. 188,424 886,780 917,722
961,965 3,731,913 4,194,465
Deferred
Federal............... 138,386 285,285 (784,396)
State................. 59,717 88,079 (242,175)
198,103 373,364 (1,026,571)
Provision for income $1,160,068 $4,105,277 $3,167,894
taxes...................

A reconciliation between the Company's effective rate and the U.S. statutory
rate is as follows:

Fiscal Year Ended
June 30,
1994 1995 1996
U.S. statutory rate........... 34.0% 34.0% 34.0%
State taxes, net of federal 5.9 6.3 5.9
benefit.......................
Goodwill...................... 1.9 0.5 --
Other......................... 1.8 0.5 2.1
Research and development credits (2.0) (0.9) --
Acquisition of The Integrity -- -- (0.8)
Group, Inc.
41.6% 40.4% 41.2%

Total tax payments made in the fiscal years ended June 30, 1994, 1995 and
1996 were $323,000, $4,708,000, and $3,187,000 respectively.

(9) Stockholders' Equity

Stock Splits

On July 20, 1995, the stockholders of the Company approved a 2.5-for-1 stock
split of the Company's outstanding common stock and preferred stock and approved
an increase of the authorized number of shares of common stock to 35,000,000 and
of preferred stock to 3,000,000. On April 16, 1996 the Company approved a 2 for
1 stock split to be effected through a 100% stock dividend issued to all share
holders of record on April 26, 1996. The dividend was distributed on May 6,
1996. Accordingly, all shares and per share data have been restated to reflect
all stock splits as though they had occurred at the beginning of the initial
period presented.

Preferred Stock

Holders of the Company's outstanding convertible preferred stock are
entitled to convert each share into one share of common stock, subject to
certain antidilutive adjustments. In the event of liquidation of the Company the
holders of preferred stock are entitled to receive, before distribution to
common stockholders, $1.02 per share.

Stock Option Plans

1991 Stock Plan. The Company's 1991 Stock Plan (the "1991 Stock Plan")
provides for the grant of nonqualified and incentive stock options to employees
and others to purchase up to 1,160,000 shares of the Company's common stock.
Options granted under the plan are exercisable at the fair market value of the
stock at the date of grant, are exercisable in full at any time, vest over three
to four years and expire ten years from the date of grant. A summary of all
stock option activity follows:

36
<PAGE>

Number of Option Price
Shares per Share
Outstanding at June 30, 1993... 2,200,000 0.03 - 0.06
Granted during fiscal 1994... 663,166 0.07- 0.65
Exercised during fiscal 1994. (87,500) 0.06
Expired during fiscal 1994... (412,500) 0.03- 0.06
Outstanding at June 30, 1994... 2,363,166 0.03- 0.65
Granted during fiscal 1995... 385,700 0.65 - 5.60
Exercised during fiscal 1995. (1,465,000) 0.03- 0.65
Expired during fiscal 1995... (125,500) 0.06- 1.07
Outstanding at June 30, 1995... 1,158,366 0.06-5.60
Granted during fiscal 1996... --
Exercised during fiscal 1996. (438,877) 0.06 - 1.07
Expired during fiscal 1996... (2,128) 1.07
Outstanding at June 30, 1996... 717,361 $0.11-5.60

Options exercisable and fully vested at June 30, 1994, 1995 and 1996 were
891,666, 408,630 and 400,906, respectively, and if all were exercised would
result in proceeds to the Company of $153,021 at June 30, 1996.

1995 Stock Plan. The Company's 1995 Stock Plan (the "1995 Stock Plan") was
approved by the Board of Directors on June 26, 1995, and by the Company's
stockholders on July 20, 1995. The 1995 Stock Plan provides for the grant or
award of stock options, restricted stock, stock appreciation rights and other
performance awards which may or may not be denominated in shares of Common Stock
or other securities (collectively, the "Awards"). Stock options granted under
the 1995 Stock Plan may be either incentive stock options or non-qualified
options. The purpose of the 1995 Stock Plan is to attract and retain outstanding
employees through the incentives of stock ownership and monetary payments. Every
regular full-time employee of the Company, including officers but excluding
directors who are not officers, is eligible to receive awards.

The 1995 Stock Plan is administered by the Compensation Committee of the
Board of Directors. Subject to the provisions of the 1995 Stock Plan, the
Committee has the authority to designate participants, determine the types of
Awards to be granted, the number of shares to be covered by each Award, the time
at which each Award is exercisable or may be settled, the method of payment and
any other terms and conditions of the Awards. All Awards are evidenced by an
Award Agreement between the Company and the participant.

While the Committee determines the prices at which options and other Awards
may be exercised under the 1995 Stock Plan, the exercise price per share of an
incentive stock option shall be at least 100% of the fair market value (as
determined under the terms of the 1995 Stock Plan) of a share of Common Stock on
the date of grant. The aggregate number of shares of Common Stock available for
awards under the Plan is 1,535,000. No Awards may be made under the 1995 Stock
Plan after June 25, 2005.

Number of Option Price
Shares per Share
Outstanding at June 30, 1994... --
Granted during fiscal 1995... 720,000 5.60
Exercised during fiscal 1995. --
Expired during fiscal 1995... --
Outstanding at June 30, 1995... 720,000 5.60
Granted during fiscal 1996... 68,256 0.49 - 16.38

Exercised during fiscal 1996. (3,064) 0.49 - 5.60
Expired during fiscal 1996... --
Outstanding at June 30, 1996... 785,192 0.49 - 16.38

During 1996 employees of The Integrity Group, Inc. were granted options to
purchase 8,254 shares of common stock at a price per share of $0.49 which was
below the fair market value at the date of the grant. This discount from fair
market value has been recorded as deferred compensation and charged to expense
ratably over the four year vesting period of the options.

37
<PAGE>

Options exercisable and fully vested at June 30, 1995 and 1996 were zero
and 142,509, respectively, and if all were exercised would result in proceeds to
the Company of $798,050 at June 30, 1996.

1995 Eligible Directors Stock Plan. The Company's 1995 Eligible Directors
Stock Plan (the "Directors Stock Plan") was approved by the Board of Directors
on June 26, 1995, and by the Company's stockholders on July 20, 1995. Under the
Directors Stock Plan, each director who is not an officer or employee of the
Company or any subsidiary of the Company (an "outside director") will be
granted, upon first being elected to the Board of Directors, an option to
purchase 10,000 shares of Common Stock at an exercise price equal to the fair
market value on the date of the grant. In addition, upon re-election, each
outside director will be granted an option on the thirtieth day following the
date of each annual meeting of stockholders to purchase 4,000 shares of Common
Stock at an exercise price equal to the fair market value on the date of grant.
A total of 100,000 shares of Common Stock are available for awards under the
Directors Stock Plan. The options granted under the Directors Stock Plan will
vest in five equal annual installments commencing one year after the date of
grant. No options may be granted under the Directors Stock Plan after June 25,
2005. As of June 30, 1996, no options had been granted under the Directors Stock
Plan.

As of June 30, 1996, the Company has reserved 2,795,000 shares of common
stock for issuance under all of its stock option plans.

In October of 1995, the FASB issued SFAS No. 123, "Accounting for Stock
Based Compensation," which establishes financial accounting and reporting
standards for stock-based compensation plans. The statement defines a fair value
based method of accounting for an employee stock option or similar equity
instrument and encourages the adoption of that method of accounting. However,
the statement also allows entities to continue to account for such plans under
Accounting Principles Board ("APB") Opinion No. 25. Entities electing to
continue accounting as permitted Opinion No. 25 must make pro forma disclosures
of net income and earnings per share as if the fair value based method of
accounting defined in the statement had been applied. The Company adopted the
statement effective July 1, 1996 and has elected to continue to account for
stock based compensation plans under the provisions of Opinion No. 25.
Therefore, the implementation of the statement will not have an effect on the
Company's consolidated financial position or consolidated results of operations,
and the Company has not yet determined what the effect will be on a pro forma
basis.

(10) Employee Benefits

The Health Payment Review, Inc. 401(k) Plan is a defined contribution plan
available to substantially all of HPR's employees. The 401(k) Plan was
established effective June 1, 1993 under section 401(k) of the Internal Revenue
Code. Under the Plan, employees may make voluntary contributions based on a
percentage of their pretax earnings. HPR contributions to the Plan are
established each year at the discretion of the Board of Directors. No amounts
were charged to expense for this Plan in fiscal 1994, 1995, and 1996.

(11) Legal Proceedings

On January 31, 1994, a suit was filed in the U.S. District Court for the
Eastern District of Pennsylvania by GMIS, Inc. ("GMIS") against the Company,
alleging that the Company's patent relating to its CodeReview product was
invalid, not infringed, and unenforceable. GMIS also alleged that the Company
interfered with the business relationships of GMIS and sued for damages of an
unspecified amount.

The Company filed a patent infringement counterclaim on March 25, 1994
alleging, among other things, that GMIS' product, ClaimCheck, infringed upon the
patent.

On January 23, 1995 the Company settled all of its outstanding claims with
GMIS. Pursuant to the settlement, the terms of which were undisclosed, the
Company granted GMIS a nonexclusive license under the patent, and GMIS
acknowledged the validity of the patent and made a one-time payment to the
Company. The payment was recorded by the Company net of legal and other costs.

38
<PAGE>

(12) Acquisitions

On April 30, 1996 the Company acquired The Integrity Group, Inc. ("TIG"),
an Alabama corporation, in a transaction accounted for as a pooling of interests
under which all of the capital stock of TIG was exchanged for 260,001 shares of
HPR Inc. common stock. TIG is a vendor of provider credentialing, accreditation
support, Healthcare Employer Data Information Set (HEDIS) reporting and data
warehousing tools and support for effective provider network management. The
accompanying financial statements for periods prior to 1996 do not include the
amounts for this acquisition as they were deemed to be immaterial. Only 1996
financial information has been restated as if the transaction had occurred as of
July 1, 1995.

TIG was a Subchapter S Corporation for income tax purposes and, therefore,
did not pay U.S. federal income taxes. TIG will be included in the Company's
U.S. federal income tax return effective April 30, 1996. The following table
presents net sales and net income for TIG and HPR from July 1, 1995 through
March 31, 1996:

For the 9 months ended March 31, 1996
--------------------------------------------------------------------------

TIG HPR Totals
Net Sales $1,626,071 $17,278,965 $18,905,036
Net Income $98,837 $2,685,424 $2,784,261

39
<PAGE>

Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure

None

PART II

Item 10. Directors and Executive Officers of the Registrant

The information required by this item is incorporated herein by reference
to the section entitled "Election of Directors" included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on November 1, 1996,
which will be filed with the Securities and Exchange Commission within 120 days
after the end of the Company's fiscal year to which this Annual Report on Form
10-K relates. Certain information concerning the registrant's executive officers
is included under the caption "Executive Officers of the Registrant" at pages
12-13 following Part I, Item 1 of this report.

Item 11. Executive Compensation

The information required by this item is incorporated herein by reference
to the section entitled "Executive Compensation" included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on November 1, 1996,
which will be filed with the Securities and Exchange Commission within 120 days
after the end of the Company's fiscal year to which this Annual Report on Form
10-K relates.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required by this item is incorporated herein by reference
to the section entitled "Voting Securities" included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on November 1, 1996,
which will be filed with the Securities and Exchange Commission within 120 days
after the end of the Company's fiscal year to which this Annual Report on Form
10-K relates.

Item 13. Certain Relationships and Related Transactions

The information required by this item is incorporated herein by reference to
the section "Compensation Committee Interlocks, Insider Participation and
Certain Transactions" included in the Company's Proxy Statement for the Annual
Meeting of Stockholders to be held on November 1, 1996, which will be filed with
the Securities and Exchange Commission within 120 days after the end of the
Company's fiscal year to which this Annual Report on Form 10-K relates.

40
<PAGE>

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

a. (1) Financial Statements

All financial statements are included in Item 8 hereof.

a. (2) Financial Statement Schedules

None

a. (3) Exhibits

<TABLE>

<CAPTION>
Exhibit
Number Description of Document
<S> <C>
3.1* -- Amended and Restated Certificate of Incorporation of the Company
approved by
the directors of the Company on June 26, 1995, as adopted by the
stockholders
on July 20, 1995.

3.2* -- By-laws of the Company, as amended effective on August 16, 1995.
4.1* -- Article Fourth of the Certificate of Incorporation of the Company
(included in
Exhibit 3.1).
10.1* -- Lease dated June 2, 1995, between Riverview Building Combined Limited
Partnership and the Company, for premises located at the Riverview
Complex,
245 First Street, Cambridge, Massachusetts.
10.2* -- The Company's 1991 Stock Plan and related forms of stock option
agreements.
10.3* -- The Company's 1995 Stock Plan and related forms of stock option
agreements.
10.4* -- The Company's 1995 Eligible Directors Stock Plan and related form of
stock
option agreement.
10.5* -- Software Development and License Agreement between the Company and
Caterpillar, Inc. dated August 15, 1988.
10.6*+ -- Product License Agreement between the Company and Symmetry Health Data
Systems, Inc. dated as of November 17, 1994, as amended.
10.7* -- Stock Purchase Agreement for shares of Series A Convertible Preferred
Stock
purchased by Greylock Limited Partnership dated December 20, 1991, as
amended
on June 26, 1995.
10.8* -- Stock Purchase Agreements for shares of Series A Convertible Preferred
Stock
purchased by Marcia J. Radosevich dated October 7, 1992 and November 2,
1992.
10.9* -- Registration Rights Agreement dated as of June 3, 1992.
10.10* -- Noncompetition Agreement between the Company and Dr. Robert D.
Hertenstein,
dated April 13, 1992, as amended on June 2, 1995.
10.11* -- Letter Agreement between the Company and Marcia J. Radosevich dated
December
6, 1989, as amended on June 26, 1995.
10.12* -- Letter Agreement between the Company and Douglas R. Percy dated April
22,
1992.
10.13* -- Letter Agreement between the Company and Thomas M. McNamara dated
November 2,
1992.
10.14* -- Agreement Pertaining to Certain Activities between the Company and
Marcia J.
Radosevich dated December 20, 1991.
10.15* -- Noncompetition agreements with Douglas R. Percy, Brian D. Cahill,
Thomas M.
McNamara, Lawrence G. Miller, Steven J. Rosenberg and James B. Stowe.
10.16* -- Consulting Agreement between the Company and Richard H. Egdahl dated
January
1, 1992, as amended on June 26, 1995.
10.17* -- Form of Indemnification Agreement between the Company and its directors
and
executive officers.
11.1 -- Statement re computation of earnings per share.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule
- --------------------------------------------------------------------------------
<FN>

+ Confidential treatment has been requested and granted with respect to certain
portions of this exhibit. Omitted portions have been filed separately with
the Securities and Exchange Commission.

* Incorporated by reference from the Company's registration statement on Form
S-1 No. 33-94132 filed with the Securities and Exchange Commission on June
30, 1995, as amended on July 25, August 1 and August 7, 1995.

</FN>
</TABLE>

41
<PAGE>

b. Reports on Form 8-K

On April 19, 1996 the Company filed a report on Form 8-K disclosing the
resignation of Douglas R. Percy as President of HPR Inc. and the issuance of
a 100% stock dividend to all holders of record on April 26, 1996.

42
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

HPR INC.

Dated: September 23, 1996 By: /s/ Marcia J. Radosevich
Marcia J. Radosevich
Chairman of the Board, Chief Executive
Officer and President

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities indicated
below on the 23rd day of September, 1996.

Signature Title

/s/ Marcia J. Radosevich Chairman of the Board, Chief Executive
(Marcia J. Radosevich) Officer, President and Director
(Principal Executive Officer)

/s/ Brian D. Cahill Vice President, Corporate Finance and
(Brian D. Cahill) and Treasurer
Planning, Chief Financial Officer, (Principal Financial and Accounting
Secretary, Officer)

/s/ Richard H. Egdahl Vice Chairman of the Board and Director
(Richard H. Egdahl)

/s/ Harris A. Berman Director
(Harris A. Berman)

/s/ Howard E. Cox, Jr. Director
(Howard E. Cox, Jr.)

/s/ William G. Nelson Director
(William G. Nelson)

Exhibit 11.1

STATEMENT RE COMPUTATION OF EARNINGS PER SHARE (1)
HPR INC.

Type of security
<S> <C>
For the year period June 30, 1996,
Common stock outstanding, beginning of period................................................ 7,680,000
Weighted average cheap stock outstanding during the period (2)...............................
Weighted average common stock issued during the period....................................... 1,235,000
Conversion of Series A Convertible Preferred Stock to Common Stock upon the
Initial Public Offering (3).................................................................. 5,525,000
Assumed exercise of common share options..................................................... 1,548,000
Purchase of common stock under the treasury stock method..................................... (148,000)
Weighted average number of common shares and common equivalent shares outstanding............ 15,840,000

For the year period June 30, 1995,
Common stock outstanding, beginning of period................................................ 5,930,000
Weighted average cheap stock outstanding during the period (2)............................... 436,000
Weighted average common stock issued during the period ...................................... 542,000
Assumed conversion of Series A Convertible Preferred Stock as a Common......................
Stock Equivalent........................................................................... 5,525,000
Assumed exercise of common share options .................................................... 1,779,000
Purchase of common stock under the treasury stock method..................................... (37,000)
Weighted average number of common shares and common equivalent shares outstanding............ 14,175,000

For the year period June 30, 1994,
Common stock outstanding, beginning of period................................................ 5,855,000
Weighted average cheap stock outstanding during the period (2)............................... 436,000
Weighted average common stock issued during the period ...................................... 19,000
Assumed conversion of Series A Convertible Preferred Stock as a Common......................
Stock Equivalent........................................................................... 5,525,000
Assumed exercise of common share options .................................................... 2,156,000
Purchase of common stock under the treasury stock method..................................... (25,000)
Weighted average number of common shares and common equivalent shares outstanding............ 13,966,000

<FN>

(1) All common and common equivalent shares have been restated to reflect a
2-for-1 capital stock split effected in the form of a 100% stock dividend to
all shareholders of record on April 26, 1996, a 2.5-for-1 capital stock
split in 1995 and a 10-for-1 capital stock split in 1993.

(2) In accordance with the Securities and Exchange Commission Staff Accounting
Bulletin No. 83, issuances of common stock and equivalents
within one year prior to the initial filing date of the
registration statement, at share prices less than the mid-point of the
estimated initial public offering price for which this registration
statement was prepared. Accordingly, these are shown as equity issued
and outstanding, using the treasury stock method, for all periods
presented prior to the initial public offering.

(3) Series A Convertible Preferred Stock was considered a common stock
equivalent prior to the initial public offering.
</FN>
</TABLE>

44
<PAGE>

Exhibit 21.1

Subsidiaries of the Company

The Company's subsidiaries are as follows: Concurrent Review Technology,
Inc., a Delaware corporation, HPR Securities Corp., a Massachusetts corporation,
and The Integrity Group, Inc., an Alabama corporation.

45
<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration statements
of HPR Inc. on Forms S-8 (File Nos. 33-80141 , 33-80143, and 33-80145) of our
report dated August 1, 1996, on our audits of the consolidated financial
statements of HPR Inc. as of June 30, 1996 and 1995 and for the years ended June
30, 1996, 1995, and 1994, which report is included in the Annual Report on Form
10-K. We also consent to the reference to our firm under Item 6, Selected
Financial Data.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
September 20, 1996

46
<PAGE>

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 8,479,122
<SECURITIES> 9,016,146
<RECEIVABLES> 5,094,065
<ALLOWANCES> 603,000
<INVENTORY> 0
<CURRENT-ASSETS> 26,271,206
<PP&E> 3,009,518
<DEPRECIATION> 1,045,354
<TOTAL-ASSETS> 34,603,469
<CURRENT-LIABILITIES> 5,806,277
<BONDS> 0
0
0
<COMMON> 179,185
<OTHER-SE> 30,579,734
<TOTAL-LIABILITY-AND-EQUITY> 24,603,469
<SALES> 28,310,272
<TOTAL-REVENUES> 28,310,272
<CGS> 7,348,354
<TOTAL-COSTS> 21,497,892
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 321,302
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,689,757
<INCOME-TAX> 3,167,894
<INCOME-CONTINUING> 4,521,863
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,521,863
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29

</TABLE>